Q2 2026 Monolithic Power Systems Inc Earnings Call
Speaker #1: Question: during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised.
Speaker #1: Please be advised that today's conference is being recorded. Now, I'd like to attend the conference over to Arthur Lee to read the State Harbor statement.
Speaker #1: Please go ahead.
Speaker #2: Earlier today, MPS released a written commentary on the results of its operations for the second quarter and the June 30, 2026. This document can be found on our website.
Speaker #2: Before we begin, I would like to remind everyone that in the course of today's presentation, we may make 4 looking statements and projections within the meaning of the private securities litigation reform act of 1995 that involve risk and uncertainties.
Speaker #1: Good day, and thank you for standing by. Welcome to MONOLITHIC POWER SYSTEMS INC. Q2 earnings conference call. At this time, all participants on the listen-only mode.
Speaker #2: The risk, uncertainties, and other factors that could cause actual results to defer from these 4 looking statements are identified in the Safe Harbor Statements contained in the Q2 2026 earnings commentary and in our SEC filings, including our Forms 10-K and Forms 10-Q, which can be found on our website.
Speaker #1: After the speaker's presentation, there'll be a Q&A session. To ask a question during the session, you will need to press star 11 on your telephone.
Speaker #1: You will then hear an automated message advising that your hand is raised. Please be advised that today's conference is being recorded. Now, I'd like to attend the conference over to Arthur Lee to read the State Harbor statement.
Speaker #2: Our statements are made as of today, and we assume no obligation to update this information. Now, I would like to turn the call over to Tony.
Speaker #1: Please go ahead.
Speaker #2: Earlier today, MPS released a written commentary on the results of its operations for the second quarter and as of June 30, 2026. This document can be found on our website.
Speaker #3: Thanks, Arthur. Good afternoon, and welcome to our Q2 2026 earnings call. In Q2, MPS achieved record quarterly revenue of $981 million, 22% higher than the first quarter of 2026, and 48% higher than the second quarter of 2025.
Speaker #2: Before we begin, I would like to remind everyone that in the course of today's presentation, we may make four looking statements and projections within the meaning of the private securities litigation reform act of 1995 that involve risk and uncertainties.
Speaker #3: Our performance was a result of our continued innovation, our consistent execution, and the resilience of our diversified market strategy. Let me take a few moments to call out a few of the highlights from the quarter.
Speaker #2: The risk, uncertainties, and other factors that could cause actual results to defer from these four looking statements are identified in the Safe Harbor Statements contained in the Q2 2026 earnings commentary and in our SEC filings, including our Forms 10-K and Forms 10-Q, which can be found on our website.
Speaker #3: All-in markets grew sequentially, with enterprise data growing 45% as we continued to see strong broad-based ordering patterns. We extended our capacity goals significantly beyond $6 billion to support future revenue growth and our transformation into a full solution provider.
Speaker #2: Our statements are made as of today, and we assume no obligation to update this information. Now, I would like to turn the call over to Tony.
Speaker #3: Thanks, Arthur. Good afternoon, and welcome to our Q2 2026 earnings call. In Q2, MPS achieved record quarterly revenue of $981 million, 22% higher than the first quarter of 2026, and 48% higher than the second quarter of 2025.
Speaker #3: We received initial orders for high-speed DDR5 memory components, which we expect to grow our SAN into next year. We began sampling high-voltage AC to DC products for 800-volt data center architectures as we expand beyond our current AI and server core power solutions.
Speaker #3: Our performance was a result of our continued innovation, our consistent execution, and the resilience of our diversified market strategy. Let me take a few moments to call out a few of the highlights from the quarter.
Speaker #3: And finally, in our automotive market, so far this year, we have shipped products for over 1,500 new sockets as we increase our footprint in both ADAS as well as in other applications within the vehicle.
Speaker #3: All-in markets grew sequentially, with enterprise data growing 45% as we continued to see strong, broad-based ordering patterns. We extended our capacity goals significantly beyond $6 billion to support future revenue growth and our transformation into a full solution provider.
Speaker #3: Overall, while we continue to adjust for the fluid geopolitical and macroeconomic environment, our diversified market strategy remains unchanged. MPS focuses on innovation and solving our customers' most challenging problems.
Speaker #3: We consistently invest in new technologies that open new end markets and applications and accelerate our transition from chip-only to a full-service silicon solution-based provider.
Speaker #3: We received initial orders for high-speed DDR5 memory components, which we expect to grow our SAN into next year. We began sampling high-voltage AC-to-DC products for 800-volt data center architectures as we expand beyond our current AI and server core power solutions.
Speaker #3: And finally, we continuously expand and diversify our global supply chains, allowing us to capture future growth opportunities and maintain supply stability and rapidly adapt to market changes as they occur.
Speaker #3: And finally, in our automotive market, so far this year, we have shipped products for over 1,500 new sockets as we increase our footprint in both ADAS as well as in other applications within the vehicle.
Speaker #3: Before moving to Q&A, I am also pleased to announce that our Board of Directors has authorized an additional $500 million for stock repurchases increasing our total current authorization to $1 billion.
Speaker #3: Overall, while we continue to adjust for the fluid geopolitical and macroeconomic environment, our diversified market strategy remains unchanged. MPS focuses on innovation and solving our customers' most challenging problems.
Speaker #3: Operator, you may now open the webinar for questions.
Speaker #1: Thanks, and gentlemen, to ask a question at this time, you will need to press star 11 on your telephone and wait for your name to be announced.
Speaker #3: We consistently invest in new technologies that open new end markets and applications and accelerate our transition from chip-only to a full-service, silicon solution-based provider.
Speaker #1: Please stand by while we compile the Q&A roster. And our first question coming from the line of Rick Schafer with Oppenheimer. Your line is now open.
Speaker #3: And finally, we continuously expand and diversify our global supply chains, allowing us to capture future growth opportunities, maintain supply stability, and rapidly adapt to market changes as they occur.
Speaker #4: Oh, thank you. And key craps on the beat you raised, you guys. I guess I don't have to ask about capacity, Tony. Communications was up 80%.
Speaker #3: Before moving to Q&A, I am also pleased to announce that our Board of Directors has authorized an additional $500 million for stock repurchases, increasing our total current authorization to $1 billion.
Speaker #4: I think last quarter it was up about 50%, if memory serves. So that's a pretty big step up. You know, I'm just curious, is that mostly transceiver power, or are you seeing meaningful contribution now from the other sockets, so Switch, DPUs, SmartNIC?
Speaker #3: Operator, you may now open the webinar for questions.
Speaker #1: Thank you. And, gentlemen, to ask a question at this time, you will need to press star one-one on your telephone and wait for your name to be announced.
Speaker #4: I mean, is that kick in? Is that helping drive that? And then any color you can give on how the second half sets up, I mean, does that momentum continue to grow into 3Q?
Speaker #1: Please stand by while we compile the Q&A roster. And our first question coming from the line of Rick Schaefer with Oppenheimer. Your line is now open.
Speaker #3: Yeah, with the higher risk, like we see a lot of growth. And a lot of demand. Modules, chips, and we see from a multiple of our customers.
Speaker #4: Oh, thank you. And key craps on the beat you raised, you guys. I guess I don't have to ask about capacity, Tony. Communications was up 80%.
Speaker #4: I think last quarter it was up about 50%, if memory serves. So that's a pretty big step up. I'm just curious, is that mostly transceiver power, or are you seeing meaningful contribution now from the other sockets, so switch, DPUs, smart NIC?
Speaker #2: And Tony, you want to have the detail?
Speaker #3: Yeah, I'll just add a little more color. Rick, you do see contribution from both optical module solutions as well as from what we generally bucketed as switches.
Speaker #3: And as I think, as I'd mentioned previously, that's kind of a big bucket that would include power solutions for not only top-of-rack switches, but DPUs, NIC cards, and other things in the rack.
Speaker #4: I mean, is that kicked in? Is that helping drive that? And then any color you can give on how the second half sets up, I mean, does that momentum continue to grow into 3Q?
Speaker #3: So you're starting to see that grow as well. Optical is still the bigger portion just because it's had a longer runway since last year, but you are seeing growth from both of those really driving the comms and market.
Speaker #3: Yeah, with the higher risk, we see a lot of growth. And a lot of demand. Modules, chips, and we see from a multiple of our customers.
Speaker #4: Oh, thanks. And my follow-up, I'm just curious, I mean, I believe you're shipping 48-volt vertical power modules to a couple of customers now. And I don't know if you can update us on that.
Speaker #4: I mean, do you expect to add any more this year? Maybe a sense of what your expectations are for 48-volt vertical power mods in terms of maybe the mix versus VR this year?
Speaker #3: And Tony, do you want to have the details?
Speaker #5: Yeah, I'll just add a little more color. Rick, you do see contribution from both optical module solutions as well as from what we generally bucket as switches.
Speaker #4: Or next year, however you want to count it, thanks.
Speaker #5: And as I think, as I'd mentioned previously, that's kind of a big bucket that would include power solutions for not only top of rack switches, but DPUs, NIC cards, and other things in the rack.
Speaker #3: It's a more than a couple of customers. Okay, I mean, we see new customers coming online. Okay, we start to ship. Yeah, I think over the long term, as power requirements continue to increase, across our end markets, Rick, we've talked about the fact that modules and solutions will increasingly be an important part of our business.
Speaker #5: So you're starting to see that grow as well. Optical is still the bigger portion, just because it's had a longer runway since last year, but you are seeing growth from both of those really driving the comms end market.
Speaker #4: Oh, thanks. And then my follow-up, I'm just curious. I mean, I believe you're shipping 48-volt vertical power modules to a couple of customers now.
Speaker #3: So I think you'll see that trend continue. Over the next couple of years.
Speaker #4: Thanks, you guys.
Speaker #4: And I don't know if you can update us on that. I mean, do you expect to add any more this year? Maybe a sense of what your expectations are for 48-volt vertical power mods in terms of maybe the mix versus VR this year?
Speaker #1: Thank you. Our next question in queue coming from the line of Joshua Buchalter with CD Cowan. Your line is now open.
Speaker #5: Hey guys, thank you for taking my question. And let me echo the congrats on the fantastic results. Maybe to start, I mean, you gained nearly 120 million dollars in the enterprise data segment in one quarter, which is pretty astounding.
Speaker #4: Or next year, or however you want to count it, thanks.
Speaker #3: It's a more than a couple of customers, okay? I mean, we see new customers coming online, okay? We start to ship.
Speaker #5: Can you walk through the drivers of that upside and growth? And I think, importantly, you had the inventory dynamics play out a couple of years ago.
Speaker #5: Yeah, and I think over the long term, as power requirements continue to increase across our end markets, Rick, we've talked about the fact that modules and solutions will increasingly be an important part of our business.
Speaker #5: Can you speak to your confidence that there's no inventory building here and the overall visibility in that segment? Thank you.
Speaker #5: So, I think you'll see that trend continue over the next couple of years.
Speaker #3: Thanks for remembering. Last couple of years, we have all these shortages in the industry. We pulled them off, okay? Thanks for remembering that. We will continue to there's no reason not to believe we will not pull it off, although it's a very difficult, okay?
Speaker #4: Thanks, you guys.
Speaker #1: Thank you. Our next question in Q, coming from the line of Joshua Buckholter with CD Cowan. Your line is now open.
Speaker #6: Hey, guys. Thank you for taking my question. And let me echo the congrats on the fantastic results. Maybe to start, I mean, you gained nearly 120 million dollars in the enterprise data segment in one quarter, which is pretty astounding.
Speaker #3: I mean, but we're going to make it happen.
Speaker #5: Yeah, and I'll just add, if you look at kind of the underlying growth drivers for that particular end market, they really haven't changed from what we've talked about.
Speaker #6: Can you walk through the drivers of that upside and growth? And I think, importantly, you had the inventory dynamics play out a couple of years ago.
Speaker #5: We've talked about ramping existing customers, ramping new customers, seeing the module content increase per Rick's question previously. Seeing platform refreshes that drive content. And then, of course, CPU.
Speaker #6: Can you speak to your confidence that there's no inventory building here and overall visibility in that segment? Thank you.
Speaker #5: And we saw all that be very strong in Q2. And I think since you're kind of talking about the sustainability of that, there's probably a couple of different ways additional Michael said.
Speaker #3: Thanks for remembering the last couple of years. We have all these shortages in the industry. We pull it off, okay? Thanks for remembering that.
Speaker #5: Obviously, our channel inventory is one indicator, and that remains very low. So we believe that's continuing to sell through over time. And I think right now, based on what we can see, we're willing to raise the floor for that particular end market from 85% for the year to 130% for the year.
Speaker #3: We will continue to there's no reason not to believe we will not pull it off, although it is a very difficult, okay? I mean, but we're going to make it happen.
Speaker #5: Yeah, and I'll just add, if you look at kind of the underlying growth drivers for that particular end market, they really haven't changed from what we've talked about.
Speaker #3: Yeah, I want to add, in the enterprise data centers, and then it's a relatively new and in the we start to see these significant business about 6, about 2, 3 years ago, 3 years ago.
Speaker #5: We've talked about ramping existing customers, ramping new customers, seeing the module content increase per Rick's question previously. Seeing platform refreshes that drive content. And then, of course, CPU.
Speaker #5: And we saw all that be very strong in Q2. And I think since you're kind of talking about the sustainability of that, there's probably a couple of different ways additional Michael said.
Speaker #3: Starting. And we don't have any concentrated customers. And pretty much, we engage from a large to small. And that's where you see the revenue happen now.
Speaker #5: Obviously, our channel inventory is one indicator, and that remains very low, so we believe that's continuing to sell through over time. And I think, right now, based on what we can see, we're willing to raise the floor for that particular end market from 85% for the year to 130% for the year.
Speaker #3: And it will continue that way. And in the next year.
Speaker #5: Thank you both for all the color. I will take a hint and not ask about AI servers again. That said, I guess.
Speaker #3: Yeah, I want to add in the enterprise data centers, and then it's a relatively new and in the we start to see these significant business about, say, about two, three years ago, three years ago.
Speaker #3: Thank you very much. Thank you.
Speaker #5: I know your policies, Michael. Great to see the initial orders for the DDR5 high-speed interface controller. You mentioned that could be SAM expansive. Can you maybe help us with how much and it does seem like quite a new capability for Monolithic.
Speaker #3: Starting. And we don't have any concentrated customers. Pretty much, we engage with customers both large and small, and that's where you see the revenue happening now.
Speaker #5: Are there other applications that you could use this technology for beyond memory controllers as well? Thank you.
Speaker #3: Yeah, yes. This is a new to us. This is a high-speed, high, very high-speed into the gigahertz kind of things. Okay, I mean, and a very, very precision.
Speaker #3: And it will continue that way. And in the next year.
Speaker #6: Thank you both for all the color. I will take the hint to not ask about AI servers again. That said, I guess.
Speaker #3: Okay, and pretty much the analog. Circuitry. And we can expand the technology to other communications. And now the we established a know-how. So that's a very these are a true fundamental know-how.
Speaker #3: Thank you very much. Thank you.
Speaker #6: I know your policies, Michael. Great to see the initial orders for the DDR5 high-speed interface controller. You mentioned that could be SAM expansive. Can you maybe help us with how much, and it does seem like quite a new capability for Monolithic.
Speaker #3: Okay, and other business, we haven't we want to get this one to launch first. And then we will migrate to other applications.
Speaker #6: Are there other applications that you could use this technology for beyond memory controllers as well? Thank you.
Speaker #5: Yeah, in terms of the second part of your question, which was how expansive it could be, I'd still say we're very much early innings.
Speaker #3: Yeah, yes. This is a new to us. This is a high-speed, high, very high-speed into the gigahertz kind of things. And a very precision and pretty much the analog circuitry.
Speaker #5: We want to prove ourselves in this particular market. So I think it's too early for us to call any kind of revenue ramp on our side.
Speaker #5: We're just signaling that we continue to run our playbook and look for new sockets out there that can expand our overall SAM over time.
Speaker #3: But in the history, what we're making something, it will turn into our revenue.
Speaker #3: And we can expand the technology to other communications. And now the we established a know-how. So that's a very these are a true fundamental know-how.
Speaker #5: Thank you both, and congratulations again.
Speaker #1: Thank you. Our next question in queue coming from the line of Tori Sandberg with Stifel. Your line is now open.
Speaker #3: And other business, we haven't we want to get this one to launch first. And then we will migrate to other applications.
Speaker #6: Yes, thank you. Let me echo the congratulations for another record quarter. How should we think about the segments for Q3? I mean, it sounds like all markets are growing right now.
Speaker #5: Yeah, in terms of the second part of your question, which was how expansive it could be, I'd still say we're very much in the early innings.
Speaker #6: But just wondering on a relative basis, if you give us some color on each segment into Q3.
Speaker #5: We want to prove ourselves in this particular market, so I think it's too early for us to call any kind of revenue ramp on our side.
Speaker #5: We're just signaling that we continue to run our playbook and look for new sockets out there that can expand our overall SAM over time.
Speaker #3: Well, I don't know. Is it all markets? Maybe Tony can point out some of the not-so-good ones. Okay. I think the consumer one, we're kind of still lagging.
Speaker #3: But in the history, what we're making something, it will take into our revenue.
Speaker #3: Okay, because all the efforts that we focus on it, and the consumer market, it doesn't mean we give it up. Okay, and we will continue a very diversified way of growing our business.
Speaker #6: Thank you both, and congratulations again.
Speaker #5: Great.
Speaker #1: Thank you. Our next question in Q, coming from the line of Tori Sandberg with Staple, your line is now open.
Speaker #3: And as we talk, as I talk about it, in the past, NPS is transitioning from a chip company a semiconductor company to be a semiconductor-based solution providers, which sell solutions.
Speaker #7: Yes, thank you. And let me echo the congratulations for another record quarter. How should we think about the segments for Q3? I mean, it sounds like all markets are growing right now.
Speaker #7: But just wondering, on a relative basis, if you could give us some color on each segment going into Q3.
Speaker #3: And so other segments and automotive continue to grow, other ones, communication side will continue to grow, and industrials kind of lagging a little bit.
Speaker #3: Well, I don't know. Is it all markets? Maybe Tony can point out some of the not-so-good ones. I think the consumer one—we're kind of still lagging, because all the efforts that we focus on in the consumer market, it doesn't mean we give it up.
Speaker #3: I mean, but doesn't mean we're defocused.
Speaker #3: And we will continue a very diversified way of growing our business. And as I talk about it, in the past, MPS is transitioning from a chip company, a semiconductor company, to be a semiconductor-based solution provider, which sells solutions.
Speaker #5: Yeah, I'll just add a little bit. I think the story is going to feel pretty similar. You're certainly being led by the data-centric businesses with enterprise data and comms, of course, leading the pack.
Speaker #5: I think industrials could grow a little bit with the market, but again, we primarily said that's a design wind type year for us this year where we continue to pile up additional sockets that will turn into revenue in the future.
Speaker #5: I think the areas that we're cautious on are the ones Michael had pointed out. And then we'd said this last quarter as well. Consumer being one, and then I think the notebook side of storage and compute will continue to remain cautious on that one as we go into the second half.
Speaker #3: And so other segments and automotive continue to grow, other ones have communication side will continue to grow, and industrial kind of lagging a little bit, but doesn't mean we're defocused.
Speaker #6: Yeah, that's a great caller. That's my follow-up. You mentioned you're now sampling the 800-volt. Solution. When should we expect to see some revenues from Monolithic Power there?
Speaker #5: Yeah, I'll just add a little bit. I think the story is going to feel pretty similar. You're certainly being led by the data-centric businesses, with enterprise data and comms, of course, leading the pack.
Speaker #6: And are these products based on silicon, GAN, and silicon carbide, or is it one or the other? Thanks.
Speaker #3: We are we have a we have a well, in the past, that's our Tori, you know, openly say, I don't believe gangs. Okay, now I think it's approved.
Speaker #5: I think industrials could grow a little bit with the market, but again, we primarily said that's a design-win type year for us this year, where we continue to pile up additional sockets that will turn into revenue in the future.
Speaker #3: I'm wrong, but it's up to a point where we can't ignore gang. And we think last year, we developed our own gang, and we'll have a working device.
Speaker #5: I think the areas that we're cautious on are the ones Michael had pointed out, and we've said this last quarter as well. Consumer being one, and then I think the notebook side of storage and compute—we will continue to remain cautious on that one as we go into the second half.
Speaker #7: Yeah, that's a great caller. That's my follow-up. You mentioned you're now sampling the 800-volt. Solution. When should we expect to see some revenues from Monolithic Power there?
Speaker #3: And in terms of 800-volt solution, it's now we totally rely on NPS's own silicon carbide device. And revenue-wise, probably you will know you will know all the market will know.
Speaker #7: And are these products based on silicon, GAN, and silicon carbide, or is it one or the other? Thanks.
Speaker #3: Okay, where is the data center transition happened? When that happens, and we will have a revenue. In terms of the wind, okay, we don't know.
Speaker #3: We are we have a we have a well, in the past, Tori, you know, our openness, I don't believe gangs and now I think it's a program I'm wrong, but the it's up to a point where we can't ignore a game.
Speaker #3: We know as much as you know.
Speaker #6: Great. Thank you very much. Congrats again.
Speaker #3: And we since last year, we developed our own game and we'll have a working device. And in terms of 800-volt solution, it's now we totally rely on NPS's own silicon carbide device.
Speaker #3: Okay.
Speaker #1: Thank you. Our next question coming from the line of Williamson with Truist Securities. Your line is now open.
Speaker #6: Great. Thanks for taking my question. I want to add my congrats to the fantastic results and outlook. I'm wondering if you could talk about whether pricing meaningfully influenced the sequential growth or the outlook in Q3.
Speaker #3: And revenue-wise, probably you will know you will know all the market will know where is the data center transition happened. When that happens, and we will have a revenue.
Speaker #3: Yeah, I know what you mean is whether we increase the price or not. Okay, and we don't NPS never gouge price when the supply chain is tight.
Speaker #3: In terms of the wind, we don't know as much as you know.
Speaker #3: And we want to build a consistent models or we execute consistently within our models. And when the supply chain is tight and okay, and raise price, how about we oversupplied, we reduce price?
Speaker #7: Great. Thank you very much. Congrats again.
Speaker #3: Okay.
Speaker #1: Thank you. Our next question is coming from the line of Williamson with Truist Securities. Your line is now open.
Speaker #7: Great, thanks for taking my question. I want to add my congrats on the fantastic results and outlook. I'm wondering if you could talk about whether pricing meaningfully influenced the sequential growth or the outlook in Q3.
Speaker #3: We don't. And we operate in a consistent way. And our customers appreciate that. So in terms of whether it's due to the price increase, that's why it's not.
Speaker #3: Yeah, it's I know what you means whether we increase the price or not. And we don't NPS never gouge price when the supply chains tight.
Speaker #3: It's all products.
Speaker #5: Yeah, the only thing I would add to that at all is for us on pricing, it's a very consistent to Michael's point. We have raised some prices, but it's primarily been a kind of one of three areas in general, right, where we've seen input costs go up to make sure that we don't get diluted on the margin line.
Speaker #3: And we want to build a consistent models or we're actually consistently within our models. And when the supply chain is tight, and raise price, how about we oversupplied, we reduce price, we don't.
Speaker #5: Where people are asking for expedites because obviously that can influence our own supply chain and then finally where people might be asking for specific supply chains outside of China, which can be naturally more expensive.
Speaker #5: So we're maintaining a very consistent approach to what you've heard previously as we look at our pricing.
Speaker #3: And we operate with consistent weight, and our customers appreciate that. So, in terms of whether it’s due to the price increase, it definitely is not. It’s all product.
Speaker #6: That's really helpful. Michael, I want to shift for a second to some things that I think are closer to your interest, some of the smaller but emerging growth opportunities like robotics, humanoid robotics, and home automation or building automation.
Speaker #5: Yeah, the only thing I would add to that at all is for us on pricing, it's a very consistent to Michael's point. We have raised some prices, but it's primarily been a kind of one of three areas in general where we've seen input costs go up to make sure that we don't get diluted on the margin line.
Speaker #6: Can you talk about your traction in those two emerging markets?
Speaker #3: Thank you very much. I'm speaking. A milling square feet building is installing the building controls. Okay, but I have to tell you something where I was still lagging of a sort of the software.
Speaker #5: Where people are asking for expedites, because obviously that can influence our own supply chain, and then finally where people might be asking for specific supply chains outside of China, which can be naturally more expensive.
Speaker #3: Okay, the hardware is all done. And with some minor revisions. Okay, but the software is the key. The ease of use and how we implement it.
Speaker #5: So we're maintaining a very consistent approach to what you've heard previously as we look at our pricing.
Speaker #7: That's really helpful. Michael, I want to shift for a second to some things that I think are closer to your interest, some of the smaller but emerging growth opportunities like robotics, humanoid robotics, and home automation or building automation.
Speaker #3: And by the end of this year, we should be able to complete everything. And there's a multiple of our customer our it's not our customers.
Speaker #7: Can you talk about your traction in those two emerging markets?
Speaker #3: Thank you very much. I'm speaking. A million square feet building is installing the building controls. But I have to tell you, we're still lagging over the software.
Speaker #3: Okay, it's a potential customers. They're waiting for us to install in their building. And I'm looking at that we're not in the market segment.
Speaker #3: But we are looking at this opportunity to my surprise is about 40 to 50 billion dollars. And that's NPS has all the key product and the technology, the software is what we will build.
Speaker #3: The hardware is all done. And with some minor revisions, but the software is the key. The ease of use and how we implement it.
Speaker #3: And by the end of this year, we should be able to complete everything. And there’s a multiple of our customer, or—it’s not our customers.
Speaker #3: And that's again, you exactly talking about my the topics that I'm working on. Okay, the other one is the robotics. Okay, the robotics, okay, there's a lot of there's especially a lot of Chinese companies shows a lot of entertainment.
Speaker #3: In that case, the potential customers—they're waiting for us to install in their building. And I'm looking at that, we're not in a market segment.
Speaker #3: Okay, and we will see it. Okay, we have all our designing solutions. Okay, they all happen in the US size and also China size.
Speaker #3: But what we are looking at with this opportunity, to my surprise, is about $40 to $50 billion. And MPS has all the key products and the technology. The software is what we will build.
Speaker #3: Okay, and they're all using NPS solutions. And now the next question is, okay, how are we going to where the robot is going to use?
Speaker #3: Okay, and from our own factory, and these are not humanoid robot. We use our own product to improve the especially the modules, not the production, the testing.
Speaker #3: And that's again you exactly talking about my the topics that I'm working on. Okay. The other one is robotics. The robotics there's a lot of there's especially a lot of Chinese companies shows a lot of entertainment.
Speaker #3: And also the reliability test. And we use our own motion controls and the robotics and it's a famous equivalent to a robot. And to make all these things happen.
Speaker #3: And we will see we have all our design-in solutions—they all happen in both the US site and also China site. And they're all using NPS solutions.
Speaker #3: And our customers is actually our supplied. To these to our own automations. They will use those solutions sell everywhere else.
Speaker #3: And now the next question is, how are we going to determine where the robot is going to be used? And from our own factory, and these are not humanoid robots.
Speaker #6: Thank you.
Speaker #3: We use our own product to improve especially the modules, not the production, the testing. And also the reliability test. And we use our own motion controls and the robotics and its famous equipment to a robot.
Speaker #1: Thank you. Our next question to you coming from the line of Quinn Bolton with Needham and Company. Your line is now open.
Speaker #7: Hey guys, I'll offer my congratulations as well. Tony, or Michael, just wanted to come back to the optical transceiver part of the business since I think that's the biggest part of comms.
Speaker #7: Can you just sort of discuss what you're seeing on the competitive landscape is competition mostly PMX? Is it mostly discrete? DC to DC converters from folks like TI or analog devices?
Speaker #3: And to make all these things happen. And our customers are actually our suppliers to these—to our own automations. They will use those solutions and sell everywhere else.
Speaker #7: And then can you give us any sense what you think your share might be for power management within those optical transceivers? And then I've got a follow-up.
Speaker #3: That's a very boring topic. Okay. That's over the last few years we talk about a power modules. Okay, I think the you realize those are very early on.
Speaker #7: Thank you.
Speaker #1: Thank you. Our next question in the queue is coming from the line of Quinn Bolton with Needham & Company. Your line is now open.
Speaker #3: Okay, I mean, it's more than five years ago now. Okay, and we have these power modules. Okay, and very high power density modules. And these are encapsulated modules.
Speaker #8: Hey guys, I'll offer my congratulations as well. Tony or Michael, just wanted to come back to the optical transceiver part of the business since I think that's the biggest part of comms.
Speaker #8: Can you just sort of discuss what you're seeing on the competitive landscape? Is the competition mostly PMICs, or is it mostly discrete DC-to-DC converters from folks like TI or Analog Devices?
Speaker #3: And since we have highest power density ICs, okay, we integrate fully integrated. And into these modules, with the inductors, and with all the capacitors and it's a total power solution plugging ing power solutions in a very small form factor.
Speaker #8: And then, can you give us any sense of what you think your share might be for power management within those optical transceivers? And then I've got a follow-up.
Speaker #3: That's a very boring topic. Okay, that's over the last few years. We talk about power modules. I think you realize those are very early on.
Speaker #3: And I said with straight face where the highest power density company in the world now. And I don't know about optical market segment as long as I know we provide the best power densities.
Speaker #3: It's been more than five years now. We have these power modules and very high power density modules, and these are encapsulated modules. Since we have the highest power density ICs, we are fully integrated.
Speaker #3: We will win all these sockets. And including optical modules.
Speaker #5: As far as the share comment goes, obviously we want to talk about specific customers. But certainly I think if you look at the overall market, there's still room for us to grow.
Speaker #3: And into these modules, with the inductors, and with all the capacitors and it's a total power solution plugging power solutions in a very small form factor.
Speaker #5: And I think just that of both the town growth and share, I think it can absolutely be a primary growth driver in the comms segment going forward.
Speaker #5: I don't think we can actually quote the exact percentage of share at this time.
Speaker #7: Okay, but you certainly still see share gain opportunities in that market, it sounds like.
Speaker #3: And I said with a straight face, we're the highest power density company in the world now. And I don't know about the optical market segment. As far as I know, we provide the best power densities.
Speaker #5: Yeah, I think in some customers we'd absolutely would see additional opportunity to gain share in some of the sockets. But I think the net of this is that within the comms segment between TAM and share, there's still a very substantial growth opportunity ahead of us.
Speaker #3: We will win all these sockets, including optical modules.
Speaker #7: Great. And then I guess just coming back to the capacity support, in the past, I think when you went from 2 billion to 4 billion, you talked about the incremental capacity largely coming from outside of China.
Speaker #5: As far as the share comment goes, obviously we don't want to talk about specific customers. But certainly, I think if you look at the overall market, there's still room for us to grow.
Speaker #7: As you've now built capacity up to and beyond 6 billion, can you give us some sense what the geographic split of that capacity is?
Speaker #5: And I think just that of both the town growth and share, I think it can absolutely be a primary growth driver in the comms segment going forward.
Speaker #7: Is it fairly balanced between China and non-China? Does it lean one way or the other?
Speaker #5: I don't think we can actually quote the exact percentage of share at this time.
Speaker #3: It's not settled down yet. Okay, we now do depend on our customers requirements. Okay, at this time, wherever all we need, okay, it goes.
Speaker #8: Okay. But you certainly still see share gain opportunities in that market, it sounds like.
Speaker #5: Yeah. I think some customers we absolutely would see additional opportunity to gain share in some of the sockets. But I think the net of this is that within the comms segment between TAM and share, there's still a very substantial growth opportunity ahead of us.
Speaker #3: Okay, and wherever we can provide a product, okay, and it will buy. Okay, and but we build a very balanced approach. And what is the percentage in the end?
Speaker #8: Great. And then I guess, just coming back to the capacity support—in the past, I think when you went from $2 billion to $4 billion, you talked about the incremental capacity largely coming from outside of China.
Speaker #3: Okay, it's difficult to call now.
Speaker #5: The only thing I'd add on that is when you just quote a total number, it sometimes gets lost in the detail. But I think we've been increasingly focused not just on the foundry side of the business, but also the backend part of the business because as Michael alluded to, modules and solutions are becoming increasingly important.
Speaker #8: As you've now built capacity up to and beyond 6 billion, can you give us some sense what the geographic split of that capacity is?
Speaker #8: Is it fairly balanced between China and non-China? Does it lean one way or the other?
Speaker #3: It's not settled down yet. Okay. We now do depend on our customers requirements. At this time, wherever all we need okay, it goes. Okay.
Speaker #5: And so that's actually a more complicated backend process as well. So as we look to bring out new partners and look to bring them on geographically balanced way, that goes for both the front end and the backend.
Speaker #7: Understood. Thank you.
Speaker #3: And wherever we can provide a product, okay, and they will buy it. Okay. And but we built a very balanced approach. And what is the percentage in the end?
Speaker #5: Yeah.
Speaker #3: Yeah, especially our module assembly, it's the most difficult. It's a 3D effect. It's a more complicated than you assemble a phone even. And so it requires a lot of a lot of experiment and then a lot of know-how.
Speaker #3: Okay. It's difficult to call now.
Speaker #5: The only thing I'd add on that is when you just quote a total number, it sometimes gets lost in the detail. But I think we've been increasingly focused not just on the foundry side of the business, but also the backend part of the business because as Michael's alluded to, modules and solutions are becoming increasingly important.
Speaker #3: And to getting all these modules. And so we now can expand to anywhere in the world. So we'll find these equipments, these are capability to make it happen.
Speaker #5: And so that's actually a more complicated backend process as well. So as we look to bring out new partners and look to bring them on geographically balanced way, that goes from both the front end and the backend.
Speaker #1: Thank you. Our next question coming from the line of Joe Quatrochi with Ross Fargo. Your line is now open.
Speaker #8: Understood. Thank you.
Speaker #5: Yeah.
Speaker #3: Yeah. Especially our module assembly—it's the most difficult. It's a 3D effect. It's more complicated than the assembly of foam even. And so it requires a lot of experimentation, and then a lot of know-how.
Speaker #6: Yeah, thanks for taking the questions. I was wondering if maybe you could just kind of give us an update on how you're thinking about automotive demand through the second half of this year.
Speaker #6: You talked about your 1,500 new design socket or sockets year to date. Just how we should think about the ramp of revenue from those new winds as well.
Speaker #3: And to getting all these modules. And so we now expand to and anywhere in the world, so we'll find these equipments and these capability to make it happen.
Speaker #5: Yeah, I think the year is still playing out pretty much as expected. And just to repeat what you said in the past, we thought the first half would be flat with the second half ramping up.
Speaker #5: And I think we feel pretty comfortable with that second half. Overall ramp. I think where we land on a year-over-year basis, we're still taking the end market can be in the mid-teens kind of year over year.
Speaker #1: Thank you. Our next question is coming from the line of Joe Catrocci with Wells Fargo. Your line is now open.
Speaker #5: The one thing about the ramp that gives us additional confidence is that it's very broadly based. It's not isolated to one or two customers for what Michael was talking about.
Speaker #5: And so the diversification that we look for in all of our end markets right now. We called out the 1,500 specifically to show that that's not just very much focused on ADAS, which has been a historical strength for us, but we continue to see a broadening out in the portfolio for other sockets in the vehicle.
Speaker #7: Yeah. Thanks for taking the questions. I was wondering if maybe you could just kind of give us an update on how you're thinking about automotive demand through the second half of this year.
Speaker #7: You talked about your 1,500 new design socket—or sockets—year to date. Just how should we think about the ramp of revenue from those new wins as well?
Speaker #3: Yeah, these are we focus on these are zonals of the 48-volt systems. And also we'll address the battery side. Okay, and the LiDAR and so these are the emerging market.
Speaker #5: Yeah, I think the year is still playing out pretty much as expected. And just to repeat what you said in the past, we thought the first half would be flat, with the second half ramping up.
Speaker #5: And I think we feel pretty comfortable with that second half. Overall ramp. I think where we land on a year-over-year basis, we're still thinking the end market can be in the mid-teens kind of year-over-year.
Speaker #3: And emerging requirements from automotive. I think it's in the next few years, they all will be installed in the car. It will see very popular.
Speaker #5: The one thing about the ramp that gives us additional confidence is that it's very broadly based. It's not isolated to one or two customers from what Michael was talking about and so the diversification that we look for in all of our end markets right now.
Speaker #3: And on the market. And now we see NPS revenue growth.
Speaker #5: We called out the 1,500 specifically to show that that's not just very much focused on ADAS, which has been a historical strength for us, but we continue to see a broadening out in the portfolio for other sockets in the vehicle.
Speaker #6: Thanks for that. And then as a follow-up, I think Ross already talked about plans to enter the RCD market. And starting to sample with customers, just curious any update in terms of how that's going?
Speaker #3: Yeah. We focus on these are Zonos, the 48-volt systems. And also we'll address the battery side. Okay. And LiDAR and so these are the emerging market.
Speaker #3: We are sampling. Okay, we are still developing. A lot of new product. And this is a very new to us. And but we're confident that we'll be turning to a revenue.
Speaker #3: And emerging requirements from automotive. I think in the next few years, they all will be installed in the car and we'll see very popular.
Speaker #3: Although we have some revenue now. Okay.
Speaker #5: Yeah, I just to keep you from a model basis, we have not that's not going to be a needle mover in 2026 for us, right, in terms of revenue.
Speaker #3: And on the market. And now we see NPS revenue growth.
Speaker #6: Yep. Thank you.
Speaker #7: Thanks for that. And then as a follow-up, I think last quarter you talked about plans to enter the RCD market. And starting to sample with customers.
Speaker #1: Thank you. Our next question coming from the lineup. Chris Caso with Wolf Research. Your line is now open.
Speaker #7: Just curious, any update in terms of how that's going?
Speaker #4: Yes, thank you. Good evening. I guess the first question is an update on where CPU server power stands right now. I know that you guys have gained a lot of share over the years on that net market.
Speaker #3: We are sampling. Okay. We are still developing. A lot new product. And this is a very new to us. And we're confident that we'll be turning to a revenue.
Speaker #4: Is heating up because of agentic CPU. So how impactful has that been to the EV segment and where do you see that going as you go into the end of the year into next year?
Speaker #3: Although we have some revenue now. Okay.
Speaker #5: Yeah. Just to keep it from a model basis, that's not going to be a needle mover in 2026 for us, right, in terms of revenue.
Speaker #5: Yeah, thanks, Chris. Let me start and then Michael and Rob can jump in as well. I think one of the things is we've been talking about it for, gosh, close to a year that CPU has been one of the growth drivers for us in enterprise data.
Speaker #8: Yep. Thank you.
Speaker #1: Thank you. Our next question is coming from the lineup. Chris Caso with Wolf Research, your line is now open.
Speaker #5: So it's something that has been and I think will continue to be part of the overall growth story. To the extent that agentic AI drives further CPU growth, that will continue to be a tailwind for us.
Speaker #6: Yeah. Thank you. Good evening. I guess the first question is an update on where CPU server power stands right now. I know that you guys have gained a lot of share over the years on that net market.
Speaker #5: As you know, it's difficult for us to separate sometimes a pure AI sale from a CPU sale. So it's a little difficult for us to parse them specifically.
Speaker #6: It's heating up because of agentic CPU. So, how impactful has that been to the EV segment? And where do you see that going as you go into the end of the year and into next year?
Speaker #5: But if we start to see some of the forecasts come to play that you've seen from some of those in the industry, we think that can be an additional growth factor for us even going forward.
Speaker #5: Yeah. Thanks, Chris. Let me start and then Michael and Rob can jump in as well. I think one of the things is we've been talking about it for, gosh, close to a year, that CPU has been one of the growth drivers for us in enterprise data.
Speaker #5: From a share perspective, again, I think we'll probably pass on specific share. I think we're very broadly indexed across both X86 and ARM players.
Speaker #5: And so no matter who sort of wins in that race, we think we can participate.
Speaker #5: So it's something that has been and I think will continue to be part of the overall growth story. To the extent that agentic AI drives further CPU growth, that will continue to be a tailwind for us.
Speaker #3: I think I answered your question one time in terms of the okay, what is the percentage? At the time, in the CPU side, we want to get in the CPU market.
Speaker #3: Market segment. I think I was asked what the shared market shares we want to be. Okay. I mentioned it in earnings class that if it's lower than a 30%, I call a failure.
Speaker #5: As you know, it's difficult for us to separate sometimes a pure AI sale from a CPU sale. So it's a little difficult for us to parse them specifically.
Speaker #5: But if we start to see some of the forecasts come to play that you've seen from some of those in the industry, we think that can be an additional growth vector for us, even going forward.
Speaker #3: Okay. I think that we're comfortably saying now we're past that. And that's where the good position we are in now. Okay. And we'll continue that.
Speaker #5: From a share perspective, again, I think we'll probably pass on specific share. I think we're very broadly indexed across both x86 and ARM players.
Speaker #5: And so, no matter who sort of wins in that race, we think we can participate.
Speaker #4: Thank you for that. As a follow-up, maybe a bit of a longer-term question. And maybe as we look out, say, over the next two years, two-plus years, do you still expect that I mean, enterprise data has been the fastest growing part of your business because it's been the fastest end market.
Speaker #3: I think I answered your question one time in terms of the—okay, what is the percentage? At the time, on the CPU side, we want to get into the CPU market.
Speaker #3: Market segment. I think I was asked what the shared market shares we want to be. Okay. I mentioned it in earnings calls that if it's lower than 30%, I call it a failure.
Speaker #4: Do you expect that to continue to be the case? And I know, Michael, you like to run a diversified business, but that end market is just growing so quickly.
Speaker #4: So I guess maybe the question is, is the growth in that end market and enterprise data make it more difficult to diversify the business?
Speaker #3: Okay. I think that we're comfortably saying now we're past that. And that's where the good position we are in now. Okay. And we'll continue that.
Speaker #5: Good questions. Okay.
Speaker #3: We never focus on any market segments. And we provide picks and shovels and a blue jeans. And as long as we're making these a best of it, we will win those segments.
Speaker #6: Thank you for that. As a follow-up, maybe a bit of a longer-term question. And maybe as we look out, say, over the next two years, two-plus years, do you still expect that— I mean, enterprise data has been the fastest-growing part of your business, because it's been the fastest end market.
Speaker #3: And so we are not really a gold diggers. Okay, out there to find out, okay, the empty mountains. Okay. We don't do that kind of things.
Speaker #6: Do you expect that to continue to be the case? And I know, Michael, you like to run a diversified business, but that end market is just growing so quickly.
Speaker #3: And we just provide the basic the best elements. Okay, for other people to succeed at that. And one times automotive was big. Okay, and other times consumer was big.
Speaker #6: So I guess maybe the question is, is the growth in that end market and enterprise data make it more difficult to diversify the business?
Speaker #3: Good questions. Okay. And we never focus on any market segments. And we provide picks and the shovels and the blue jeans. And as long as we're making these a best of it, we will win those segments.
Speaker #3: Okay. And we let our customers let the market demands. Okay. To decide that. As long as we focus on the fundamental development, I think that we will win the very long-terms.
Speaker #3: And so, we are not really gold diggers, okay? Out there to find empty mountains, okay? We don't do that kind of thing.
Speaker #3: And clear example was a couple of years ago, the AI and go sideways. Okay, or enterprise data go went sideways even dropped the sliding.
Speaker #3: And we just provide the basic, the best elements, okay, for other people to succeed at that. And one time automotive was big, okay, and other times consumer was big.
Speaker #3: Okay. And that year, all the other business grow tremendous. Including automotives. And that's exactly what we want to see. Okay. And we have we want to provide to our investors a very consistent way of grow NPS.
Speaker #3: Okay. And we let our customers let the market demands. Okay. To decide that. As long as we focus on the fundamental development, I think that we will win the very long terms.
Speaker #5: And even this last Q2, right, outside the enterprise data, the rest of the businesses saw double-digit growth. So I understand your comment on what TAM might be growing faster, but you can see you're still seeing pretty substantial growth outside of ED.
Speaker #3: A clear example was a couple of years ago—the AI and enterprise data both went sideways. Okay. Or enterprise data even went sideways, or even dropped slightly.
Speaker #4: Thank you.
Speaker #1: Thank you. Our next question coming from the lineup. Kelsey Chia with City. Your line is now open.
Speaker #3: Okay. And that year, all the other businesses grew tremendously, including automotives. And that's exactly what we want to see. Okay. And we want to provide our investors with a very consistent way of growing NPS.
Speaker #2: Hi. Good evening. So based on these strong and broad-based ordering patterns you guys have, may I know how much visibility do you have in the enterprise data and market?
Speaker #2: And I was wondering if you can provide any color as to how 2027 outlook could look like based on the design wins, visibility, expected product ramps, or elaborate on any incremental revenue opportunities and ramp within that segment.
Speaker #5: And even this last Q2, right, outside enterprise data, the rest of the businesses saw double-digit growth. So I understand your comment on why TAM might be growing faster, but you can see you're still seeing pretty substantial growth outside of ED.
Speaker #5: Yeah, I'll start on that one. And I think in general, 2027 is a bit far away. We're still trying to land 2026. But I think if you to answer the first part of your question and the visibility, again, the longer-term ordering patterns that we saw begin, even late last year, have really maintained.
Speaker #6: Thank you.
Speaker #1: Thank you. Our next question coming from the lineup. Kelsey Cho with Citi, your line is now open.
Speaker #4: Hi. Good evening. So based on these strong and broad-based ordering patterns you guys have, may I know how much visibility do you have in the enterprise data and market?
Speaker #5: And I'm hooked to build this cycle was, again, well above one. So we do have more than a quarter-type visibility like we were dealing with maybe midway through 2025.
Speaker #5: That doesn't mean we necessarily have visibility all the way out to the end of the 2027, though. But I think the way I would address that is I think the underlying structural growth drivers haven't really changed, right?
Speaker #4: And I was wondering if you can provide any color as to how the 2027 outlook could look based on the design wins, visibility, expected product ramps, or elaborate on any incremental revenue opportunities and ramp within that segment.
Speaker #5: We have best of breed from a current density and modules. You see more and more of our end markets adopting those high current density modules for their applications.
Speaker #5: Yeah, I'll start on that one. I think, in general, 2027 is a bit far away. We're still trying to land 2026. But I think, to answer the first part of your question on visibility, again, the longer-term ordering patterns that we saw begin even late last year have really maintained.
Speaker #5: If we continue to win new sockets. So I think our ability to continue to grow into '27 is still structurally very sound. I think it's too early to put a number on it.
Speaker #3: Well, here is it. The true demand is determined by the market. And we don't want our customers to end up in a lot of wasteful inventories.
Speaker #5: And our hook-to-build this cycle was, again, well above one. So, we do have more than a quarter-type visibility, like we were dealing with maybe midway through 2025.
Speaker #3: At the same times, we will watch us. Okay, our own inventory, we will end up a lot of inventory we cannot sell. So we clearly balance that.
Speaker #5: That doesn't mean we necessarily have visibility all the way out to the end of 2027, though. But I think the way I would address that is, I think the underlying structural growth drivers haven't really changed, right?
Speaker #3: And what is the forecast? We don't do even though we have an NCNR, and we don't shoveled into our customers' throat. There's a bad relationships.
Speaker #5: We have best-of-breed solutions from a current density and modules perspective. You see more and more of our end markets adopting those high current density modules for their applications.
Speaker #5: And we continue to win new sockets. So I think our ability to continue to grow into '27 is still structurally very sound. But I think it's too early to put a number on it.
Speaker #3: And our relationship is very long-terms. And so it cannot although the order bookings are very good as Tony said it, okay, but we don't see the business in that way.
Speaker #3: Well, here is the true demand. It's determined by the market. And we don't want our customers to end up in a lot of wasteful inventories.
Speaker #3: At the same times, we will watch us. Okay. Our own inventory will end up a lot of inventory we cannot sell. So we clearly balance that.
Speaker #3: And we do things swiftly according to our customer demand.
Speaker #2: Got it. And also, with such strong revenue outlook, could you help us think about gross margins and opex trajectory? It seems that you guys are landing somewhat below your long-term opex guidance right now.
Speaker #3: And what is the forecast? We don't do it even though we have an NCNR, and we don't shove it down our customers' throats. That leads to bad relationships.
Speaker #3: Well, we're in the models. We're still in the models. In the low end. I said I was in I would be happier or higher.
Speaker #3: And our relationship is very long-term. And so, although the order bookings are very good, as Tony said, okay, we don't see the business in that way.
Speaker #3: I wasn't I said I wasn't happy. And look at this. Okay, we focus on growing the revenue and growing the net profit. EPS. That's the key reason.
Speaker #3: And we do things swiftly, according to our customers' demand.
Speaker #3: The other one is nobody wants us to have a high gross margin. Less of a lack of a growth. Okay, nobody wants us to do that.
Speaker #4: Got it. And also, with such a strong revenue outlook, could you help us think about gross margins and opex trajectory? It seems that you guys are landing somewhat below your long-term opex guidance right now.
Speaker #3: And I'll shareholder doesn't want us to do that, certainly. Okay, and so we focus on this. Okay, we'll be gross margins I said it.
Speaker #3: Well, we're in a model. We're still in a model. In the low end. I said I was in I would be happier or higher I And look at this.
Speaker #3: Okay, and we will figure it out. Okay, we will grow higher. Certainly, in the near future, probably stays similar, maybe slightly higher.
Speaker #3: Okay. We focus on growing the revenue and growing the net profit. EPS. That's the key reason. The other one is nobody wants us to have a high gross margin.
Speaker #5: And hi, Kelsey. This is Rob. I'll add to what Michael was saying. And I'll do it. Tony was saying about the strong order levels, which continued into Q2, gave us the ability to incrementally expand our guidance on gross margin again, just slightly, but it's there.
Speaker #3: Less of a lack of growth. Okay. Nobody wants us to do that, and our shareholders don't want us to do that, certainly. Okay.
Speaker #5: So as Michael said, we're at the low end of where we want to be, but we're feeling comfortable about where we're at for Q3.
Speaker #5: And Kelsey, the last part of your question was a little bit on opex and I think in general, we haven't changed any of our thesis around how we're trying to invest for the future.
Speaker #3: And so we focus on this. Okay, we'll beat gross margins—I said it, okay? And we will figure it out. We will grow higher.
Speaker #5: I think what you see is when you get to higher levels of revenue, it's difficult to keep the levels of spending up to that model.
Speaker #3: Certainly, in the near future is where people stay similar maybe slightly higher.
Speaker #5: And so you see some additional leverage as you flow through to operating margin. And I think you seem pretty healthy expansion in operating margin over the past couple of quarters.
Speaker #5: And hi, Kelsey. This is Rod. I'll add to what Michael was saying and to what Tony was saying about the strong order levels, which continued into Q2.
Speaker #2: Got it. Thank you.
Speaker #1: Thank you. Our last questioner will come from the lineup. Sebastien Naji with William Blair. Your line is now open.
Speaker #5: Give us the ability to incrementally expand our guidance on gross margin again—just slightly, but it’s there. So, as Michael said, we’re at the low end of where we want to be, but we’re feeling comfortable about where we're at for Q3.
Speaker #6: Yeah, thanks for taking the questions and congrats on a great quarter here. It's great to see the momentum across the business. AI data center is clearly a strong tailwind for the enterprise data business, also in communications.
Speaker #5: And Kelsey, the last part of your question was a little bit on opex, and I think in general, we haven't changed any of our thesis around how we're trying to invest for the future.
Speaker #6: A little bit even in storage and compute. I mean, if I start to add up all these segments, you're looking at a data center exposure that's approaching roughly 50%.
Speaker #5: I think what you see is, when you get to higher levels of revenue, it's difficult to keep the levels of spending up to that model.
Speaker #6: I mean, is that the right way to think about it across your different end markets?
Speaker #5: And so you see some additional leverage as you flow through to operating margin. And I think you've seen pretty healthy expansion in operating margin over the past couple of quarters.
Speaker #5: I think you're picking the right components as you go in there, right? Obviously, the optical module business, the switch business can be pulled to a data center.
Speaker #5: All of enterprise data. And then remember inside of storage, you really kind of have three big sub-buckets: DDR5, HDD, and SDD. HD and SDD, I think over time, are becoming increasingly enterprise-focused, whereas at one point, they might have been more consumer-based.
Speaker #4: Got it. Thank you.
Speaker #1: Thank you. Our last questioner will come from the lineup. Bessie Najee with William Blair, your line is now open.
Speaker #2: Yeah. Thanks for taking the questions and congrats on a great quarter here. It's great to see the momentum across the business. AI data center is clearly a strong tailwind for the enterprise data business, also in communications.
Speaker #5: So we haven't broken out storage and compute versus notebook in there, but I think you're picking the right components as you look at those things that could ride some of the healthy demand pulled through my data center right now.
Speaker #2: A little bit even in storage and compute. I mean, if I start to add up all these segments, you're looking at a data center exposure that's approaching roughly 50%.
Speaker #6: Okay, great. And maybe just as a quick follow-up on the incremental supply capacity that you're bringing online, is that is any of that on newer node processes like 40 nanometer, or is that mostly on existing 65 nanometer solutions?
Speaker #2: I mean, is that the right way to think about it across your different end markets?
Speaker #5: I think you're picking the right components as you go in there, right? Obviously, the optical module business and the switch business can be pulled to that data center.
Speaker #5: I think it's mostly the existings. We're talking about sometimes from now on, we have the increase on in the capacity. Again, Tony said this is not about only about the silicons.
Speaker #5: All of enterprise data, and then the memory inside of storage, you really kind of have three big sub-buckets: DDR5, HDD, and SSD. HDD and SSD, I think over time, are becoming increasingly enterprise-focused, whereas at one point, they might have been more consumer-based.
Speaker #5: Wafers. We're building a lot more we're building systems. And that changes the complexities of the biosilicon only. I mean, we have been on this journey, for instance, 2017.
Speaker #5: So, we haven't broken out storage and compute versus notebook in there, but I think you're picking the right components as you look at those things that could ride some of the healthy demand pulled through my data center right now.
Speaker #2: Okay, great. And maybe just as a quick follow-up on the incremental supply capacity that you're bringing online—is any of that on new or node processes like 40 nanometer, or is that mostly on existing 65 nanometer solutions?
Speaker #5: And all the procurement vendor qualification component qualifications we have it became a mature and now I mean, we have to pull some more new tricks in the next year or so to increase all these capacities.
Speaker #5: I think it's mostly the existing ones. We're talking about, sometimes from now on, we have the increase in the capacity. Again, Tony said this is not only about the silicon.
Speaker #5: Wafers. We're building a lot more, we're building systems. And that changes the complexities of the biosilicon only. I mean, we have been on this journey since 2017.
Speaker #6: Right, right. Would you say it's the worst or the hardest to increase capacity over the last 10 years that you've seen?
Speaker #3: It's different periods, different times. And the qualified vendors in the silicon side, we have a lot of experience. And you move up to assistance, how you assemble all these systems.
Speaker #5: And all the procurement vendor qualification component qualifications we have, it became mature, and now I mean, we have to pull some more new tricks in the next year or so to increase all these capacities.
Speaker #3: And how you qualify all these vendors. And how you take the yield loss is in completely different models. We have to operate on it.
Speaker #3: And we are becoming I would say that we became a lot more mature. And then there's a lot more room to go. A lot more improvement to go.
Speaker #2: Right, right. Would you say it’s been the worst, or the hardest, to increase capacity over the last 10 years that you’ve seen?
Speaker #6: Got it. Great. Thank you so much.
Speaker #1: Thank you. And I'm showing there are no further questions in the queue at this time. I will now send a callback over to Tony Balow for any closing comments.
Speaker #3: It's different periods, different times. And the qualified vendors on the silicon side, we have a lot of experience. And you move up to assistance—how you assemble all these systems.
Speaker #5: All right. Thank you, operator. Thank you all for joining us for the conference call today. Look forward to speaking with all of you for our next call for our third quarter of 2026 results.
Speaker #5: Thank you again, and have a nice day.
Speaker #3: And how you qualify all these vendors. And how you take the yield loss. It's an completely different model. We have to operate on it.
Speaker #3: And we have become I would say that we've become a lot more mature and that there's a lot more room to go. A lot more improvement to go.
Speaker #2: Got it. Great. Thank you so much.
Speaker #1: Thank you. I'm showing there are no further questions in the queue at this time. I will now turn the call back over to Tony Baylor for any closing comments.
Speaker #5: All right. Thank you, operator. Thank you all for joining us for the conference call today. We look forward to speaking with all of you on our next call for our third quarter 2026 results.
Speaker #5: Thank you again, and have a nice day.
